China Issues New Antitrust Rules for Internet Operators
On February 7, China issued its Guideline for Anti-Monopoly for the Internet Platform Industry （关于平台经济领域的反垄断指南）. This Guideline provides a set of antitrust rules that apply specifically for internet operators. This development follows China’s recent passage of an E-commerce Law and a revision of the Anti-Unfair Competition Law, two key elements of regulation of the digital regime, as China’s online market is booming. It is also part of China’s larger effort to update its antitrust law regime.
Over the past decade, Chinese antitrust authorities have launched over 100 cases, most of which are investigations on pharmaceutical companies and water utilities. Recently, the Chinese government initiated multiple antitrust investigations on tech companies. For instance, the State Administration for Market Regulation (SAMR) fined Vipshop, a Chinese e-commerce company, $646,000 for monopolistic behavior. Chinese companies China Literature, Live Box, and Alibaba were fined $77,000 (500,000 yuan) for violating procedural requirements in the antitrust law. Alibaba is currently under another antitrust investigation for restricting trade, and Chinese tech giants Tencent and Meituan are also facing domestic antitrust litigation.
The newly issued Guideline will provide more details on identifying monopolistic behavior and could help shape future Chinese anti-monopoly enforcement.
The Guideline was issued by the Antitrust Commission under the State Council, which has an operational office within the SAMR. The SAMR released a draft for comments (关于平台经济领域的反垄断指南（征求意见稿）last November. The final text has six chapters and 24 provisions. It offers key definitions of terms such as internet platform and platform operator, and provides rules on monopoly agreements, abuse of dominant market position, concentration of business operators in the internet sector, and abuse of administrative power.
With regard to the monopoly agreements, the Guideline sets out elements of horizontal monopoly agreements and vertical monopoly agreements. The Guideline also adds certain elements for determining dominant market positions. For example, when determining the market share, user counts, click volume and usage time should be considered. The technical capacity of a company shall also be taken into account when determining whether it has a dominant market position. This will include the capability of processing data and the extent to which it can expand or maintain market position.
Several additional changes under the Guideline are noteworthy. First of all, the Guideline acknowledges that algorithms and data could be used for monopolistic purposes. As a result, using algorithms and data to coordinate or restrict trade can also be considered to be monopoly agreements.
In addition, the Guideline states that the MFN (most favored nation) clause may constitute a vertical monopoly agreement or abuse of dominant market position. In this context, the MFN clause guarantees equal or better treatment compared to other competitors. Such language in a contract will be taken into account, along with other elements such as the impact on competition, innovation, and consumer benefits, to determine whether a vertical monopoly agreement exists.
The Guideline also clarifies that an exclusivity requirement in a contract or through other means could be considered as restricting trade. Trade restrictions, combined with other factors, constitute the abuse of a dominant market position. This provision targets internet platform operators, which in the past have engaged in a practice of forcing internet platform business users to use the platform exclusively or in a manner otherwise limiting trade.
The above-mentioned provisions echo Article 35 of the E-commerce Law, which prevents platform operators from exploiting agreements or transaction rules to unreasonably restrict or put unreasonable requirements on platform business users’ transactions, transaction prices, or transactions with other businesses.
The Guideline also has a provision to prevent government agencies or officials from eliminating competition through various discriminatory administrative actions or inactions.
Usually, defining the relevant market is the first step in antitrust investigations when determining whether there has been abuse of a dominant market position. A previous draft of the Guideline states that agencies may skip this step if it is too difficult to identify the relevant market and there is other evidence to support the existence of a dominant market position. However, this provision is removed in the final text. As a result, defining the relevant market is still a necessary step.
Amendments to Antitrust Law
The Guideline would be an implementing document for the Antitrust Law, which is currently in the process of being amended. China’s current Antitrust Law (English version) was passed in 2008, but the SAMR published the draft for Antitrust Law amendments (amendment draft) in January 2020.
Noticeably, the amendment draft adds elements to determine the monopoly status of internet operators, including network influence, scale, lock-in effects, and the ability to obtain and process data. This may facilitate supervision of internet companies.
It also toughens the punishment for violating antitrust rules. For instance, it increases the fine from 500,000 yuan to 50 million yuan or up to 10% of sales revenue for the previous year, when companies combine their business to gain competitive advantages without filing a concentration declaration first. It also has a provision stating that any violations could result in criminal punishment. The implementation of this provision will rely on revising the current Criminal Law. Right now, there is no criminal punishment for monopolistic behavior.
In addition, the amendment draft clarifies the determining factors in relation to vertical monopolies, adds details of exemptions for monopoly agreements, and specifies that agencies have the authority to review business concentrations even when mandatory declaration is not required.
Procedure-wise, the amendment draft regulates several circumstances when the review of declared concentration of business operators can be suspended. The current law says the review shall be finished within 180 days. This amendment allows the review to last beyond 180 days in practice.
Other antitrust implementing regulations
SAMR also issued three interim regulations to implement the Antitrust Law in 2019: The Interim Provisions on Prohibiting Monopoly Agreements, the Interim Provisions on Prohibiting Abuse of Dominant Market Positions, and the Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power. These three interim regulations replace previous regulations, including the Provisions against Price Fixing.
The Interim Provisions on Prohibiting Monopoly Agreements (禁止垄断协议暂行规定) outlines the determination of monopoly agreements and prohibits monopoly agreements in the service market, production market, raw material market, new technology, and others. Agreements will be banned if they fix prices or production quality, or divide the market.
The Interim Provisions on Prohibiting Abuse of Dominant Market Positions (禁止滥用市场支配地位行为暂行规定) clarifies the determining factors of a dominant market position, including the ability to control price, quantity or other trading conditions, or prevent competitors from entering the market. It also sets out actions that would be considered as abuse of a dominant market position, as well as exceptions.
The Interim Provisions on Prohibiting the Acts of Eliminating or Restricting Competition by Abuse of Administrative Power (制止滥用行政权力排除、限制竞争行为暂行规定) prevents the administrative agencies from abusing their authority to restrict market competition, and ensures the free flow of goods, services and investment within China.
In the same year, the Antitrust Committee under the SAMR issued the Guideline for Anti-Monopoly in the Field of Intellectual Property Rights (关于知识产权领域的反垄断指南), which sets out elements to determine abuse of a dominant market position, monopoly agreements, and concentration of business operators when intellectual property rights are involved.